Consolidated Financial Statements KYUDENKO CORPORATION. Years ended March 31, 2017 and 2016

Transcription

1 Consolidated Financial Statements KYUDENKO CORPORATION Years ended March 31, 2017 and 2016

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3 KYUDENKO CORPORATION Consolidated Balance Sheet March 31, (Thousands of (Note 4) Assets Current assets: Cash on hand and in banks (Notes 6, 17 and 19) 28,973 30,314 $ 270,209 Trade notes and accounts receivable (Note 17) 90, , ,646 Short-term investments (Notes 17 and 18) Costs on uncompleted construction contracts 6,405 6,679 59,535 Merchandise ,127 Raw materials and supplies 538 4,108 36,622 Deferred tax assets (Note 13) 2,961 3,415 30,446 Other current assets (Note 6) 4,981 6,766 60,310 Allowance for doubtful accounts (4) (6) (53) Total current assets 135, ,172 1,409,859 Fixed assets: Property, plant and equipment: Buildings and structures (Note 6) 63,467 64, ,665 Machinery, vehicles, tools, furniture and fixtures (Note 6) 33,416 35, ,690 Leased assets 5,957 5,999 53,473 Land 28,262 28, ,014 Construction in progress 2,824 4,604 41,044 Accumulated depreciation (50,648) (53,453) (476,451) Total property, plant and equipment 83,279 85, ,437 Intangible assets: Goodwill (Note 21) 1,556 1,175 10,478 Other intangible assets 1, ,691 Total intangible assets 2,568 2,150 19,169 Investments and other assets: Investment securities (Notes 6, 17 and 18) 31,903 46, ,576 Long-term loans receivable (Note 6) ,141 Asset for retirement benefits (Note 7) ,155 Deferred tax assets (Note 13) 4,540 3,401 30,317 Other (Note 6) 4,084 4,218 37,601 Allowance for doubtful accounts (750) (892) (7,956) Total investments and other assets 40,450 54, ,837 Total fixed assets 126, ,306 1,268,444 Total assets 262, ,478 $ 2,678,304 3

4 March 31, (Thousands of (Note 4) Liabilities and net assets Current liabilities: Trade notes and accounts payable (Note 17) 68,369 80,636 $ 718,745 Short-term borrowings (Notes 5 and 17) 2,957 21, ,637 Income taxes payable (Note 13) 6,511 6,083 54,225 Advances received on uncompleted construction contracts 9,874 9,611 85,675 Provision for loss on construction contracts ,847 Other current liabilities (Notes 5 and 13) 9,280 6,818 60,775 Total current liabilities 97, ,745 1,111,908 Long-term liabilities: Convertible bond-type bonds with share subscription rights (Notes 5 and 17) 9,997 1,860 16,579 Long-term debt (Notes 5 and 17) 16,213 9,707 86,528 Lease obligations (Note 5) 1,999 2,322 20,703 Provision for directors and corporate auditors retirement benefits ,085 Liability for retirement benefits (Note 7) 21,310 17, ,730 Other long-term liabilities (Notes 8 and 13) 2,034 2,634 23,486 Total long-term liabilities 51,795 34, ,113 Total liabilities 148, ,975 1,417,022 Commitments and contingencies (Note 15) Net assets (Note 9): Shareholders equity: Common stock: Authorized 250,000,000 shares Issued 66,039,535 and 70,134,971 shares in 2016 and 2017, respectively 7,901 11, ,688 Capital surplus 7,891 11, ,134 Retained earnings 101, ,700 1,066,948 Treasury stock (611) (8) (72) Total shareholders equity 116, ,232 1,276,699 Accumulated other comprehensive income Unrealized holding gain (loss) on securities 2,117 3,097 27,605 Unrealized gain (loss) on hedging instruments (Note 20) (234) (185) (1,654) Translation adjustments ,490 Retirement benefit liability adjustments (Note 7) (7,384) (6,430) (57,317) Total accumulated other comprehensive income (5,182) (3,351) (29,875) Non-controlling interests 2,026 1,622 14,458 Total net assets 113, ,503 1,261,282 Total liabilities and net assets 262, ,478 $ 2,678,304 See notes to consolidated financial statements. 4

5 KYUDENKO CORPORATION Consolidated Profit and Loss Statement Year ended March 31, (Thousands of (Note 4) Net sales (Note 21): Construction contracts (Note 10) 296, ,915 $ 2,931,773 Other 14,744 12, ,589 Total net sales 311, ,771 3,046,363 Cost of sales (Note 12): Construction contracts 253, ,412 2,490,526 Other 12,710 10,407 92,769 Total cost of sales 266, ,820 2,583,296 Gross profit: Construction contracts 43,141 49, ,247 Other 2,033 2,448 21,820 Total gross profit 45,175 51, ,067 Selling, general and administrative expenses (Notes 11 and 12) 19,977 21, ,134 Operating profit (Note 21) 25,197 30, ,932 Non-operating profit (loss): Interest income Dividend income ,983 Interest expenses (379) (397) (3,539) Equity in earnings of affiliates Rent income ,925 Insurance and dividend income ,531 Foreign exchange losses (83) (73) (659) Provisions of allowance for doubtful accounts - (92) (820) Extra retirement payments (34) (41) (365) Provisions of allowance for doubtful accounts of subsidiaries - (121) (1,078) Other, net ,215 Ordinary profit 27,551 32, ,901 Special gains (losses): Gain on sales of fixed assets Loss on disposal and sales of fixed assets (242) (142) (1,266) Gain on sales of investment securities Impairment loss on investment securities (84) (96) (856) Loss on sales of subsidiaries shares - (42) (377) Other, net (18) - - Profit before income taxes 27,374 31, ,187 Income taxes (Note 13): Current 8,775 9,650 86,016 Deferred Profit 17,963 22, ,799 Profit attributable to non-controlling interests Profit attributable to owners of parent 17,901 22,297 $ 198,752 See notes to consolidated financial statements. 5

6 KYUDENKO CORPORATION Consolidated Statement of Comprehensive Income Year ended March 31, (Thousands of (Note 4) Profit 17,963 22,303 $ 198,799 Other comprehensive income (Note 14): Unrealized holding gain (loss) on securities (1,911) 964 8,600 Unrealized gain (loss) on hedging instruments (87) Translation adjustments (244) (190) (1,696) Retirement benefit liability adjustments (4,264) 954 8,507 Share of other comprehensive income of affiliates accounted for by the equity method (54) Total other comprehensive income (6,562) 1,783 15,895 Comprehensive income 11,401 24,086 $ 214,695 Comprehensive income attributable to: Owners of parent 11,380 24,128 $ 215,069 Non-controlling interests 20 (42) $ (374) See notes to consolidated financial statements. 6

7 KYUDENKO CORPORATION Consolidated Statement of Changes in Net Assets For the years ended March 31, 2016 and 2017: Shareholders equity Accumulated other comprehensive income Total Unrealized Unrealized accumulated Total holding gain gain (loss) on Retirement other Non- Common Capital Retained Treasury shareholders (loss) on hedging Translation benefit liability comprehensive controlling Total stock surplus earnings stock equity securities instruments adjustments adjustments income interests net assets Balance at April 1, ,901 7,889 85,537 (48) 101,279 4,012 (82) 528 (3,119) 1,338 2, ,658 Cash dividends paid (2,303) (2,303) (2,303) Profit attributable to owners of parent for the period 17,901 17,901 17,901 Purchase of treasury stock (565) (565) (565) Disposal of treasury stock Purchase of shares of consolidated subsidiaries Increase in retained earnings due to change in accounting period of subsidiaries Net changes in items other than those in shareholders equity (1,895) (151) (208) (4,264) (6,520) (14) (6,534) Total changes during the year 1 15,636 (562) 15,075 (1,895) (151) (208) (4,264) (6,520) (14) 8,540 Balance at March 31, 2016 Balance at April 1, ,901 7, ,173 (611) 116,355 2,117 (234) 319 (7,384) (5,182) 2, ,199 Issuance of new shares 3,730 3,726 7,457 7,457 Cash dividends paid (3,742) (3,742) (3,742) Profit attributable to owners of parent for the period 22,297 22,297 22,297 Purchase of treasury stock (4) (4) (4) Disposal of treasury stock Increase in retained earnings due to merger Purchase of shares of consolidated subsidiaries Decrease in retained earnings due to change in accounting period of subsidiaries (32) (32) (32) Net changes in items other than those in shareholders equity (152) 954 1,830 (404) 1,426 Total changes during the year 3,730 4,015 18, , (152) 954 1,830 (404) 28,303 Balance at March 31, ,632 11, ,700 (8) 143,232 3,097 (185) 167 (6,430) (3,351) 1, ,503 7

8 For the year ended March 31, 2017: Shareholders equity Accumulated other comprehensive income Common stock Capital surplus Retained earnings Treasury stock Total shareholders equity Unrealized holding gain (loss) on securities Unrealized gain (loss) on hedging instruments Translation adjustments Retirement benefit liability adjustments Total accumulated other Noncomprehensive controlling income interests Total net assets (Thousands of (Note 4) Balance at April 1, 2016 $ 70,433 $ 70,399 $ 901,806 $ (5,453) $1,037,126 $ 18,871 $ (2,092) $ 2,851 $ (65,824) $ (46,193) $ 18,063 $ 1,008,996 Issuance of new shares 33,255 33,212 66,467 66,467 Cash dividends paid (33,360) (33,360) (33,360) Profit attributable to owners of parent for the period 198, , ,752 Purchase of treasury stock (38) (38) (38) Disposal of treasury stock 641 5,419 6,061 6,061 Increase in retained earnings due to merger Purchase of shares of consolidated subsidiaries 1,941 1,941 1,941 Decrease in retained earnings due to change in accounting period of subsidiaries (286) (286) (286) Net changes in items other than those in shareholders equity 8, (1,360) 8,507 16,317 (3,604) 12,712 Total changes during the year 33,255 35, ,141 5, ,573 8, (1,360) 8,507 16,317 (3,604) 252,286 Balance at March 31, 2017 $ 103,688 $ 106,134 $1,066,948 $ (72) $1,276,699 $ 27,605 $ (1,654) $ 1,490 $ (57,317) $ (29,875) $ 14,458 $ 1,261,282 See notes to consolidated financial statements. 8

9 KYUDENKO CORPORATION Consolidated Statement of Cash Flows Year ended March 31, (Thousands of (Note 4) Cash flows from operating activities Profit before income taxes 27,374 31,995 $ 285,187 Depreciation and amortization 5,475 5,449 48,569 Increase (decrease) in allowance for doubtful accounts (30) 142 1,269 Increase (decrease) in liability for retirement benefits and provision for directors and corporate auditors retirement benefits (2,805) (2,448) (21,821) Increase (decrease) in provision for loss on construction contracts (397) 154 1,381 Interest and dividend income (593) (864) (7,703) Interest expenses ,539 Foreign exchange loss (gain) Equity in earnings of affiliates (358) (6) (56) Loss (gain) on sales of property, plant and equipment (69) (46) (410) Loss on retirement of property, plant and equipment Impairment loss on investment securities Loss (gain) on sales of investment securities (89) (37) (336) Loss (gain) on sales of subsidiaries shares Decrease (increase) in trade notes and accounts receivable (10,442) (15,156) (135,099) Decrease (increase) in costs on uncompleted construction contracts 1,753 (304) (2,713) Decrease (increase) in inventories 816 (3,539) (31,550) Increase (decrease) in trade notes and accounts payable (693) 12, ,279 Increase (decrease) in advances received on uncompleted construction contracts (6,012) (254) (2,272) Increase (decrease) in long-term accounts payable Increase (decrease) in consumption taxes payable (receivable) 3,413 (5,281) (47,076) Other, net 120 1,488 13,268 Subtotal 18,146 24, ,929 Interest and dividend income received ,703 Interest expenses paid (379) (397) (3,539) Income taxes paid (7,579) (10,392) (92,634) Net cash provided by operating activities 10,776 14,187 $ 126,458 9

10 Year ended March 31, (Thousands of (Note 4) Cash flows from investing activities Payments into time deposits (2,090) (671) $ (5,982) Proceeds from withdrawal of time deposits 2,013 2,680 23,889 Purchase of property, plant and equipment (6,344) (6,381) (56,877) Proceeds from sales of property, plant and equipment ,296 Purchase of investment securities (5,811) (14,059) (125,322) Proceeds from sales of investment securities ,489 Purchase of subsidiaries shares resulting in changes in scope of consolidation (698) - - Proceeds from purchase of subsidiaries shares resulting in changes in scope of consolidation Payments of long-term loans receivable (511) (322) (2,874) Collection of long-term loans receivable ,079 Proceeds from sales of subsidiaries shares resulting in change in scope of consolidation ,032 Other, net (1,468) (328) (2,928) Net cash used in investing activities (13,597) (17,951) (160,006) Cash flows from financing activities Net increase (decrease) in short-term borrowings (320) 14, ,802 Proceeds from long-term debt Repayments of long-term debt (2,767) (2,561) (22,833) Purchase of treasury stock (565) (4) (38) Repayments to non-controlling shareholders (23) (22) (196) Cash dividends paid (2,295) (3,732) (33,272) Cash dividends paid to non-controlling shareholders (20) (103) (919) Purchase of subsidiaries shares not resulting in changes in scope of consolidation (0) (29) (262) Other, net (953) (839) (7,478) Net cash provided by (used in) financing activities (6,206) 7,200 64,180 Effect of exchange rate changes on cash and cash equivalents (133) (92) (821) Net increase (decrease) in cash and cash equivalents (9,160) 3,344 29,811 Cash and cash equivalents at the beginning of the year 35,931 26, ,280 Increase (decrease) in cash and cash equivalents resulting from changes in accounting period of consolidated subsidiaries (38) (56) (507) Increase in cash and cash equivalents resulting from merger with acquiring non-consolidated subsidiaries Cash and cash equivalents at the end of the year (Note 19) 26,732 30,027 $ 267,651 See notes to consolidated financial statements. 10

11 1. Basis of Presentation KYUDENKO CORPORATION Notes to Consolidated Financial Statements KYUDENKO CORPORATION (the Company ) and its domestic subsidiaries maintain their accounting records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, and its foreign subsidiaries maintain their books of account in conformity with those of their countries of domicile. The accompanying consolidated financial statements of the Company and consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Act of Japan. Certain amounts in the prior year s financial statements have been reclassified to conform to the current year s presentation. As permitted by the Financial Instruments and Exchange Act of Japan, amounts less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and do not necessarily agree with the sum of the individual amounts. 2. Summary of Significant Accounting Policies (a) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates The accompanying consolidated financial statements include the accounts of the Company and any significant companies controlled directly or indirectly by the Company. Investments in companies over which the Company exercises significant influence in terms of their operating and financial policies have been accounted for by the equity method. As of March 31, 2017, the numbers of consolidated subsidiaries and affiliates accounted for by the equity method were 43 and 6 (43 and 5 in 2016), respectively. During the year ended March 31, 2017, the following events and/or transactions have occurred, which resulted in changes in the scope of consolidation. The Company s subsidiary sold the stock of Dynamic Golf Co., which was accordingly excluded from the scope of consolidation. Bentana Supply Co., which had been a non-consolidated subsidiary, merged into Kyushu-denko Home Co., a consolidated subsidiary. The Company acquired Kyusetsu Kogyo Co., which was newly included in the scope of consolidation. Kushima Windhill Co. was newly accounted for by the equity method because of its increased materiality. In addition, Higo Youhoku Sougou Setsubi Co., a consolidated subsidiary, changed its name to Higo Setsubi Co. The financial statements of Kyusetsu Kogyo Co. are consolidated by using the financial statements as of February 28 which are prepared solely for consolidation purposes. Kyulien Environment Improving Co., Ltd, Asia Projects Engineering Pte. Ltd. and Kyudenko South East Asia Pte. Ltd. are consolidated using their financial statements as of their respective fiscal year end, which falls on December 31. Necessary adjustments are made to their financial statements to reflect any significant 11

12 transactions from January 1 to March 31. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in subsidiaries and affiliates which are not consolidated or accounted for by the equity method are carried at cost or less. Where there has been a permanent decline in the value of such investments, the Company has written down the investments. Differences between the cost and the underlying net equity at fair value of investments in consolidated subsidiaries and in companies which are accounted for by the equity method (goodwill) have been amortized by the straight-line method over periods not exceeding 20 years. However, immaterial amounts of goodwill and negative goodwill are charged or credited to profit (loss) in the year of acquisition. (b) Foreign currency translation Receivables and payables denominated in foreign currencies are translated into yen at the rates of exchange in effect at the balance sheet date, and differences arising from the translation are included in the consolidated statement of income. The balance sheet accounts and income statement accounts of the foreign consolidated subsidiaries are translated into yen at the rates of exchange in effect at the balance sheet date, except for the components of net assets excluding non-controlling interests which are translated at their historical exchange rates. Differences arising from the translation are presented as translation adjustments and non-controlling interests in the consolidated financial statements. (c) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, cash in banks which can be withdrawn at any time and short-term investments with a maturity of three months or less when purchased which can easily be converted to cash and are subject to little risk of change in value. (d) Inventories Costs on uncompleted construction contracts are stated at cost by the specific identification method. Merchandise and raw materials and supplies are stated principally at the lower of cost or market, cost being determined principally by the periodic average method. (e) Short-term investments and investment securities Securities other than equity securities issued by subsidiaries and affiliates are classified into three categories: trading, held-to-maturity or other securities. Trading securities are carried at fair value and held-to-maturity securities are carried at amortized cost. Marketable securities classified as other securities are carried at fair value with changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net assets. In cases where an embedded derivative in a compound financial instrument cannot be separately measured, the entire compound financial instrument is measured at fair value with changes in value charged or credited to profit (loss). Non-marketable securities classified as other securities are carried at cost except for investments in limited partnerships that are accounted for by 12

13 the equity method. Cost of securities sold is determined by the moving average method. (f) Property, plant and equipment and depreciation (excluding leased assets) Depreciation of property, plant and equipment (excluding leased assets) of the Company and its consolidated subsidiaries is calculated principally by the declining-balance method based on the estimated useful lives and the residual value in accordance with the Corporation Tax Law of Japan, except for certain buildings of the Company and domestic consolidated subsidiaries, which are depreciated by the straight-line method. Facilities attached to buildings and other non-building structures acquired on or after April 1, 2016 are also depreciated by the straight-line method. Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to profit (loss). (g) Intangible assets (excluding leased assets) Intangible assets (excluding leased assets) are amortized by the straight-line method. Computer software for internal use is amortized by the straight-line method over the estimated useful life of five years. (h) Leases Non-cancellable lease transactions that transfer substantially all risks and rewards associated with the ownership of assets are accounted for as finance leases. All other lease transactions are accounted for as operating leases and related payments are charged to profit (loss) as incurred. (i) Allowance for doubtful accounts Allowance for doubtful accounts is provided based on past experience for normal receivables and on an estimate of collectability of receivables from companies in financial difficulty. (j) Allowance for investment loss Allowance for investment loss is provided at an amount considered to be appropriate based on an evaluation of the financial condition of the individual investees. The allowance is directly deducted from each investment account. (k) Provision for loss on construction contracts Provision for loss on construction contracts is provided with respect to construction projects for which anticipated future losses can be reasonably estimated. (l) Retirement benefits Accrued retirement benefits and prepaid pension cost for employees have been recorded mainly at the amount calculated based on the retirement benefit obligation and the fair value of the pension plan assets as of the balance sheet date. The 13

14 expected retirement benefit payment for employees is attributed to each period by the benefit formula method to estimate the retirement benefit obligation. Actuarial gain or loss is amortized in the years following the year in which the gain or loss is recognized primarily by the straight-line method over periods within the average remaining years of service of the employees. Prior service cost is being amortized as incurred by the straight-line method over periods within the average remaining years of service of the employees. Most of the consolidated subsidiaries use a simplified method for calculating retirement benefit expenses and liabilities based on the assumption that the benefits payable, which are calculated as if all eligible employees voluntarily terminated their employment at fiscal year-end, approximate the retirement benefit obligation at year-end. In addition, accrued retirement benefits for directors and corporate auditors of certain consolidated subsidiaries are provided at the amount payable at year-end in accordance with each company s internal regulations. Retirement benefit expenses for directors and corporate auditors are charged to profit (loss) when the general shareholders meeting approves the resolutions for the payments of those benefits. (m) Income taxes Deferred tax assets and liabilities have been recognized in the consolidated financial statements with respect to the differences between the financial reporting and tax bases of the assets and liabilities, and were measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse. (n) Research and development costs Research and development costs are charged to profit (loss) as incurred. (o) Recognizing revenues and costs of construction contracts Revenues and costs of construction contracts for which contract revenues, contract costs and the percentage of completion can be reliably estimated are recognized by the percentage-of-completion method. The percentage of completion is calculated at the cost incurred as a percentage of the estimated total cost. The completed-contract method continues to be applied for construction contracts for which the percentage-of-completion cannot be reliably estimated. (p) Consumption taxes Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. (q) Derivative financial instruments The Company and certain affiliates enter into various derivative transactions in order to manage certain risks arising from adverse fluctuations in foreign currency exchange rates and interest rates. Derivatives financial institutions are carried at fair value with changes in unrealized gain or loss charged or credited to profit (loss), except for those which meet criteria for deferral hedge accounting under which unrealized gain or loss is deferred as a component of net assets. 14

15 Deferral hedge accounting is adopted for derivatives which qualify as hedges, under which unrealized gain or loss is deferred. Hedging instruments are derivative transactions and hedged items are primarily interest payments on long-term debt (including foreign currency interest payments) and forecasted transactions and long-term debt denominated in foreign currencies. Hedge effectiveness is not assessed if the substantial terms and conditions of the hedging instruments and the hedged items are the same. With regard to interest rate swaps and currency swaps which meet certain conditions, the Company applies the special treatment (short-cut method) assuming no ineffectiveness in the hedging relationship between hedged items and hedging instruments. No evaluation is performed for hedge effectiveness of forward foreign exchange contracts since the derivative contracts are based on forecasted transactions which are certain to be executed. The Company also has compound financial instruments with embedded derivatives as part of its surplus fund management. (r) Impairment of fixed assets The Company and its consolidated subsidiaries base their asset grouping for assessing impairment losses on fixed assets on their management accounting categories (each branch of the Company and each consolidated subsidiary). Leased assets and idle assets are separately evaluated for impairment. (t) Additional information Implementation Guidance on Recoverability of Deferred Tax Assets The Company and its consolidated subsidiaries adopted Revised Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26, March 28, 2016) from the beginning of the fiscal year ended March 31, Accounting Changes The Company and its domestic consolidated subsidiaries adopted Practical Solution on a change in depreciation method due to Tax Reform 2016 (ASBJ PITF No. 32, June 17, 2016) as a result of revisions to the Corporate Tax Act of Japan. Accordingly, the depreciation method for both facilities attached to buildings and other non-building structures acquired on or after April 1, 2016 was changed from the declining-balance method to the straight-line method. The effect of this change on operating profit, ordinary profit and profit before income taxes was immaterial. 4. U.S. Dollar Amounts The accompanying consolidated financial statements are expressed in yen, and solely for the convenience of the readers, have been translated into U.S. dollars at the rate of = US$1.00, the approximate rate of exchange prevailing as of March 31, This translation should not be construed as a representation that all amounts shown could be converted into U.S. dollars at such rate. 5. Short-Term Borrowings, Long-Term Debt, Convertible Bond-type Bonds with Share Subscription Rights and Lease Obligations The annual weighted-average interest rates applicable to short-term borrowings (excluding 15

16 the current portion of long-term debt) were 2.042% and 0.270% for the years ended March 31, 2016 and 2017, respectively. 16

17 Long-term debt, convertible bond-type bonds with share subscription rights and lease obligations at March 31, 2016 and 2017 consisted of the following: (Thousands of Loans from banks due through 2030 with interest rates ranging from 0.124% to 1.530% 18,775 16,255 $ 144,896 Convertible bond-type bonds with share subscription rights (non-interest bearing) 9,997 1,860 16,579 Lease obligations due through ,818 3,172 28,280 31,590 21, ,755 Less current portion (3,380) (7,398) (65,944) 28,209 13,890 $ 123,811 The aggregate annual maturities of long-term debt, convertible bond-type bonds with share subscription rights and lease obligations as of March 31, 2017 are summarized as follows: Year ending March 31, (Millions of yen) (Thousands of ,398 $ 65, ,437 75, ,171 10, ,092 9, , and thereafter 2,256 20,117 21,288 $ 189, Pledged Assets The assets pledged as collateral for long-term debt of the Company s investees involved in the renewable energy generation business and/or PFI business at March 31, 2016 and 2017 were as follows: (Thousands of Cash on hand and in banks $ 2,507 Other current assets short-term loans receivable 9 1,309 11,672 Buildings and structures Machinery, vehicles, tools, furniture and fixtures 1,634 1,441 12,847 Investment securities 2,429 7,212 64,289 Long-term loans receivable Investments and other assets other Total 4,434 10,361 $ 92,354 17

18 7. Retirement Benefit Plans The Company has defined contribution plans, and the Company and its consolidated subsidiaries also have defined benefit plans (corporate pension plans and lump-sum payment plans) covering substantially all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rates of pay, length of service, and the conditions under which termination occurs. The Company and its consolidated subsidiaries may pay additional retirement benefits under certain circumstances. For most of the defined benefit plans of consolidated subsidiaries, liabilities and expenses for retirement benefits are calculated using the simplified method. Some consolidated subsidiaries have joined the employees pension fund system, a multiple-employers pension plan. If the amount of plan assets corresponding to the contributions of each subsidiary cannot be reasonably calculated, such plans are accounted for by the same method as that for defined contribution plans. (a) Defined benefit plans 1) The changes in the retirement benefit obligation for the years ended March 31, 2016 and 2017 were as follows: (Thousands of Balance at the beginning of the year 42,211 45,636 $ 406,781 Service cost 1,496 1,845 16,448 Interest cost ,440 Actuarial gain and loss 2, Retirement benefit paid (4,850) (3,607) (32,155) Prior service cost 3, Balance at the end of the year 45,636 44,233 $ 394,272 2) The changes in the plan assets for the years ended March 31, 2016 and 2017 were as follows: (Thousands of Balance at the beginning of the year 25,602 25,800 $ 229,970 Expected return on plan assets ,599 Actuarial gain and loss (464) 241 2,152 Contributions by the Company 4,466 4,454 39,707 Retirement benefit paid (4,365) (3,033) (27,039) Other Balance at the end of the year 25,800 28,028 $ 249,831 18

19 3) The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheet at March 31, 2016 and 2017 for the Company s and its consolidated subsidiaries defined benefit plans: (Thousands of Funded retirement benefit obligation 38,138 36,846 $ 328,426 Plan assets at fair value (25,800) (28,028) (249,831) 12,338 8,817 78,594 Unfunded retirement benefit obligation 7,498 7,387 65,846 Net liability for retirement benefits in the consolidated balance sheet 19,836 16, ,440 Liability for retirement benefits 19,836 16, ,440 Asset for retirement benefits Net liability for retirement benefits in the consolidated balance sheet 19,836 16,204 $ 144,440 4) The components of retirement benefit expenses for the years ended March 31, 2016 and 2017 were as follows: (Thousands of Service cost 1,446 1,795 $ 16,008 Interest cost ,440 Expected return on plan assets (512) (516) (4,599) Amortization of actuarial gain and loss 1,542 1,702 15,173 Amortization of prior service cost (817) (454) (4,048) Other Retirement benefit expenses 2,158 2,842 $ 25,340 5) The components of retirement benefit liability adjustments included in other comprehensive income (before tax effect) for the years ended March 31, 2016 and 2017 were as follows: (Thousands of Prior service cost (4,566) (454) $ (4,048) Actuarial gain and loss (1,487) 1,858 16,569 Total (6,054) 1,404 $ 12,520 6) The components of retirement benefit liability adjustments included in accumulated other comprehensive income (before tax effect) as of March 31, 2016 and 2017 were as follows: (Thousands of Unrecognized prior service cost 4,738 5,192 $ 46,281 Unrecognized actuarial gain and loss 5,916 4,057 36,167 Total 10,654 9,249 $ 82,449 19

20 7) The fair value of plan assets, by major category, as a percentage of total plan assets at March 31, 2016 and 2017 were as follows: Bonds 46% 43% Stocks 26% 29% General accounts of life insurance 9% 9% Other 19% 19% Total 100% 100% The expected return on assets has been estimated based on the anticipated allocation to each asset class and the expected long-term returns on assets held in each category. 8) Weighted average assumptions used in accounting for the above plans were as follows: Discount rates 0.6% 0.7% Expected rates of return on plan assets 2.0% 2.0% (b) Defined benefit plans accounted for using the simplified method 1) The changes in liability for retirement benefits calculated using the simplified method for the years ended March 31, 2016 and 2017 were as follows: (Thousands of Balance at the beginning of the year 1,200 1,284 $ 11,444 Retirement benefit expenses ,218 Retirement benefit paid (141) (117) (1,043) Contributions (342) (352) (3,143) Transfer to accounts payable - (149) (1,331) Other 28 (1) (9) Balance at the end of the year 1,284 1,024 $ 9,135 2) The following table sets forth the funded status of the plans accounted for using the simplified method and the amounts recognized in the consolidated balance sheet at March 31, 2016 and 2017 for the defined benefit plans: (Thousands of Funded retirement benefit obligation 4,238 3,957 $ 35,277 Plan assets at fair value (3,178) (3,143) (28,021) 1, ,255 Unfunded retirement benefit obligation ,879 Net liability for retirement benefits in the consolidated balance sheet 1,284 1,024 9,135 Liability for retirement benefits 1,473 1,266 11,290 Asset for retirement benefits (188) (241) (2,155) Net liability for retirement benefits in the consolidated balance sheet 1,284 1,024 $ 9,135 3)Retirement benefit expenses calculated using the simplified method amounted to

21 million and 361 million ($3,218 thousand) for the years ended March 31, 2016 and 2017, respectively (c) Defined contribution plans Contributions made to defined contribution plans by the Company and its consolidated subsidiaries for the years ended March 31, 2016 and 2017 were 344 million and 344 million ($3,070 thousand), respectively. (d) Multiple-employers pension plans With regard to the employees pension fund system to which some consolidated subsidiaries have joined, note on multiple-employers pension plans where contributions are recognized as retirement benefit expenses is not presented because such contribution amounts were immaterial. 8. Asset Retirement Obligations Asset retirement obligations mainly represent future obligations to restore leased property to its original condition associated with the removal of the consolidated subsidiaries renewable energy generation facilities. The asset retirement obligations are measured at the present value of the future liabilities applying discount rates of 0.612% to 1.994% corresponding with 17 years which is the estimated useful life of those facilities from the acquisition date. The following table indicates the changes in asset retirement obligations for the years ended March 31, 2016 and 2017: (Thousands of Balance at the beginning of the year $ 8,248 Increase due to acquisition of fixed assets Adjustment due to passage of time Balance at the end of the year 925 1,028 $ 9, Net Assets Under the Corporate Law of Japan (the Corporate Law ), the entire amount paid for new shares is required to be designated as common stock, in principle. However, a company may designate an amount not exceeding 50% of the proceeds of the issuance of new shares as additional paid-in-capital, which is included in capital surplus. The Corporate Law provides that an amount equal to 10% of the amount to be distributed as distributions of capital surplus (other than capital reserve) and retained earnings (other than legal reserve) be transferred to capital reserve and legal reserve, respectively, until the sum of capital reserve and legal reserve equals 25% of the stated common stock. Such distributions can be made at any time by resolution of the shareholders or by the Board of Directors, if certain conditions are met, but neither capital reserve nor legal reserve is available for distributions. 21

22 (a) Shares issued and outstanding / Treasury shares For the year ended March 31, 2016: Types of shares Number of shares at April 1, 2015 Increase Decrease Number of shares at March 31, 2016 (Number of Shares) Shares issued: Common stock 66,039, ,039,535 Treasury stock: Common stock 61, ,251 1, ,045 Details of the increase and decrease in treasury stock are as follows: Increase due to purchase of shares 309,000 Resolution of the Board of Directors on February 26, 2015 Increase due to purchase of shares of less than one standard unit 22,251 Decrease due to exercise of share subscription rights 1,636 2nd unsecured convertible bond-type bonds with share subscription rights For the year ended March 31, 2017: Types of shares Number of shares at April 1, 2016 Increase Decrease Number of shares at March 31, 2017 (Number of Shares) Shares issued: Common stock 66,039,535 4,095,436-70,134,971 Treasury stock: Common stock 391,045 1, ,446 18,941 Detail of the increase in shares issued is as follows: Issuance of new shares due to exercise of share subscription rights 4,095,436 2nd unsecured convertible bond-type bonds with share subscription rights Details of the increase and decrease in treasury stock are as follows: Increase due to purchase of shares of less than one standard unit 1,342 Decrease due to exercise of share subscription rights 373,446 2nd unsecured convertible bond-type bonds with share subscription rights (b) Share subscription rights For the year ended March 31, 2016 Number of shares subject to share subscription rights Company Description Type of shares At April 1, 2015 Increase Decrease At March 31, 2016 (Number of Shares) Parent company 2nd unsecured Common stock 5,452,562 5,951 1,636 5,456,877 convertible bond-type bonds with share subscription rights 22

23 1. Number of shares subject to share subscription rights represents the number of shares to be issued upon exercise of the share subscription rights. 2. The increase during the year was due to adjustments to the conversion value, and the decrease was due to exercise of the share subscription rights. The share subscription rights are included in the convertible bond-type bonds with share subscription rights in the consolidated balance sheet For the year ended March 31, 2017 Number of shares subject to share subscription rights Company Description Type of shares At April 1, 2016 Increase Decrease At March 31, 2017 (Number of Shares) Parent company 2nd unsecured Common stock 5,456,877 33,533 4,468,882 1,021,528 convertible bond-type bonds with share subscription rights 1. Number of shares subject to share subscription rights represents the number of shares to be issued upon exercise of the share subscription rights. 2. The increase during the year was due to adjustments to the conversion value, and the decrease was due to exercise of the share subscription rights. The share subscription rights are included in the convertible bond-type bonds with share subscription rights in the consolidated balance sheet. (c) Dividends 1) Dividends paid For the year ended March 31, 2016: Total dividends (Millions of yen) Resolution: Meeting of the Board of Directors on April 28, 2015 Cash dividends ( 15 per share) 989 Resolution: Meeting of the Board of Directors on October 29, 2015 Cash dividends ( 20 per share) 1,313 Cut-off Date March 31, 2015 September 30, 2015 Effective date June 5, 2015 December 1, 2015 For the year ended March 31, 2017: Total dividends (Millions of yen) (Thousands of U.S. dollars) Resolution: Meeting of the Board of Directors on April 28, 2016 Cash dividends ( 25 ($0.22) per share) 1,641 $ 14,633 Resolution: Meeting of the Board of Directors on October 28, 2016 Cash dividends ( 30 ($0.27) per share) 2,101 $ 18,727 Cut-off date March 31, 2016 September 30, 2016 Effective date June 7, 2016 December 1,

24 2) Dividends with the cut-off date in the year ended March 31, 2016 and the effective date in the year ended March 31, 2017: Total dividends (Millions of yen) Resolution: Meeting of the Board of Directors on April 28, 2016 Cash dividends ( 25 per share) Source of dividends: Retained earnings 1,641 Cut-off date March 31, 2016 Effective date June 7,

25 Dividends with the cut-off date in the year ended March 31, 2017 and the effective date in the year ending March 31, 2018: Total dividends (Millions of yen) (Thousands of U.S. dollars) Resolution: Meeting of the Board of Directors on April 28, 2017 Cash dividends ( 40 ($0.36) per share) Source of dividends: Retained earnings 2,805 $ 25,005 Cut-off date March 31, 2017 Effective date June 6, Net Sales from Construction Contracts Recognized by Percentage-of-Completion Method Net sales from construction contracts recognized by the percentage-of-completion method for the years ended March 31, 2016 and 2017 amounted to 138,742 million and 166,115 million ($1,480,664 thousand), respectively. 11. Selling, General and Administrative Expenses Major items included in selling, general and administrative expenses for the years ended March 31, 2016 and 2017 were as follows: (Thousands of Salaries and wages 8,450 8,735 $ 77,867 Retirement benefit expenses ,476 Provision for directors and corporate auditors retirement benefits Depreciation and amortization , Research and Development Costs Research and development costs included in cost of sales and selling, general and administrative expenses for the years ended March 31, 2016 and 2017 amounted to 255 million and 235 million ($2,102 thousand), respectively. 25

26 13. Income Taxes Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax, inhabitants taxes and enterprise tax, which, in the aggregate, resulted in statutory rates of approximately 32.83% and 30.69% for the years ended March 31, 2016 and 2017, respectively. Income taxes of the foreign consolidated subsidiaries are based generally on the tax rates applicable in their countries of incorporation. The reconciliation between the effective tax rates reflected in the consolidated statement of income and the effective statutory tax rates was not presented because the difference between the statutory tax rate and the effective tax rate reflected in the consolidated statement of income was not greater than 5% of the statutory tax rate for the years ended March 31, 2016 and

27 The significant components of deferred tax assets and liabilities as of March 31, 2016 and 2017 were as follows: (Thousands of Deferred tax assets: Liability for retirement benefits 6,457 5,341 $ 47,612 Accrued bonuses 1,962 2,125 18,943 Tax loss carryforwards 1, ,315 Unrealized profits on fixed assets ,271 Other 2,512 2,748 24,500 Total gross deferred tax assets 12,740 11, ,642 Valuation allowance (1,641) (1,272) (11,342) Total deferred tax assets 11,098 10,579 94,299 Deferred tax liabilities: Unrealized holding gain on other securities (890) (1,290) (11,505) Reserve for advanced depreciation of fixed assets (1,286) (1,269) (11,314) Reserve for special depreciation (1,022) (824) (7,352) Other (630) (818) (7,293) Total deferred tax liabilities (3,829) (4,203) (37,466) Net deferred tax assets 7,268 6,376 $ 56,833 Note: Net deferred tax assets as of March 31, 2016 and 2017 were reflected in the following accounts in the consolidated balance sheet: (Thousands of Current assets - deferred tax assets 2,961 3,415 $ 30,446 Investments and other assets - deferred tax assets 4,540 3,401 30,317 Current liabilities - other current liabilities (15) (59) (530) Long-term liabilities - other long-term liabilities (216) (381) (3,400) 27

28 14. Other Comprehensive Income The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive income for the years ended March 31, 2016 and 2017: (Thousands of U.S. dollars) Unrealized holding gain (loss) on securities: Amount arising during the year (2,790) 1,403 $ 12,514 Reclassification adjustments for gains and losses included in profit (loss) attributable to owners of parent (84) (27) (241) Amount before tax effect (2,874) 1,376 12,272 Tax effect 962 (412) (3,672) Unrealized holding gain (loss) on securities (1,911) 964 8,600 Unrealized gain (loss) on hedging instruments: Amount arising during the year (125) Reclassification adjustments for gains and losses included in profit (loss) attributable to owners of parent Amount before tax effect (125) Tax effect 38 (13) (121) Unrealized gain (loss) on hedging instruments: (87) Translation adjustments: Amount arising during the year (244) (190) (1,696) Retirement benefit liability adjustments: Amount arising during the year (6,779) 156 1,395 Reclassification adjustments for gains and losses included in profit (loss) attributable to owners of parent 725 1,248 11,125 Amount before tax effect (6,054) 1,404 12,520 Tax effect 1,789 (450) (4,013) Retirement benefits liability adjustments (4,264) 954 8,507 Share of other comprehensive income of affiliates accounted for by the equity method: Amount arising during the year (54) Total other comprehensive income (6,562) 1,783 $ 15,895 28

29 15. Commitments and Contingencies The Company and its consolidated subsidiaries had the following contingent liabilities at March 31, 2016 and 2017: Debt guarantees for non-consolidated companies (Thousands of Mizuho Bank, Ltd. (Atsumi Greenpower Co.) $ 4,148 Development Bank of Japan Inc. (Nagashima Windhill Co.) ,191 Total $ 6,339 Discounted notes receivable Endorsement for transfer of notes receivable (Thousands of - 30 $ 270 (Thousands of 5 6 $ 61 The Company has entered into subordinated loan commitment contracts as a subordinated creditor in joint financing for companies involved in the PFI business. At March 31, 2016 and 2017, the Company had loan commitment agreements with 9 companies. The unused balances under the loan commitment contracts at March 31, 2016 and 2017 were as follows: (Thousands of Total loan commitments $ 1,304 Aggregated borrowings Unused balances $ 1, Amounts Per Share Per share information as of March 31, 2016 and 2017 and for the years then ended is as follows: (Yen) ( Profit attributable to owners of parent: Basic $ 2.92 Diluted

30 Net assets 1, , $ Basic profit attributable to owners of parent per share is computed based on the profit attributable to owners of parent available for distribution to shareholders of common stock and the weighted average number of shares of common stock outstanding during the year, and diluted profit attributable to owners of parent per share is computed based on the profit attributable to owners of parent available for distribution to the shareholders and the weighted average number of shares of common stock outstanding during each year after giving effect to the dilutive potential of shares of common stock to be issued upon the exercise of share subscription rights. Net assets per share are computed based on the net assets excluding non-controlling interests and the number of shares of common stock outstanding at the year end. The bases for calculation are as follows: (a) Basic and diluted profit attributable to owners of parent per share (Thousands of shares) Weighted average number of shares for basic profit attributable to owners of parent 65,704 68,143 Increase in shares of common stock: Exercise of share subscription rights 5,457 2,989 Number of shares used for diluted profit attributable to owners of parent per share 71,161 71,133 The entire amount of profit attributable to owners of parent for the years ended March 31, 2016 and 2017 was attributed to common shareholders. (b) Net assets per share (Thousands of shares) Number of shares of common stock used for the calculation of net assets per share 65,648 70,116 (Thousands of Total net assets 113, ,503 $ 1,261,282 Amounts deducted from total net assets: Non-controlling interests (2,026) (1,622) (14,458) Net assets attributable to shares of common stock 111, ,881 $ 1,246, Financial Instruments (a) Policy for financial instruments The Company and its consolidated subsidiaries utilize short-term deposits for surplus funds. 30

31 In addition, they raise funds through borrowings from financial institutions. Derivative transactions are only used to reduce risks arising from fluctuations in foreign currency exchange rates and interest rates, except for certain highly secure embedded derivatives in compound financial instruments used for surplus funds. The Company and its consolidated subsidiaries do not enter into derivatives for speculative or trading purposes. The Company and its consolidated subsidiaries execute and manage derivative transactions within the limits of established internal rules and regulations. (b) Details of financial instruments, related risk and risk management system Trade receivables, such as trade notes and accounts receivable, are exposed to credit risk in relation to customers. The Company and its consolidated subsidiaries monitor the due dates and manage credit risk under the credit management rules to mitigate the risk. Investment securities mainly consist of equity securities and are exposed to market risk. The Company and its consolidated subsidiaries review the fair values of listed equity securities quarterly and the financial condition of the issuing entities. Trade payables, such as trade notes and accounts payable, have payment due dates mainly within one year. Short-term borrowings are taken out mainly to obtain funds for operating activities. Long-term debt and convertible bond-type bonds with share subscription rights are used mainly for the purposes of making investments and repurchasing treasury stock. Trade payables, short-term borrowings and long-term debt are exposed to liquidity risk. The Company and its consolidated subsidiaries manage the risk by preparing and updating its cash flow plans monthly. In order to avoid interest rate fluctuation risk and foreign exchange fluctuation risk, the Company uses interest rate swaps for certain loans borrowed from financial institutions, interest rate and currency swaps are used for all loans denominated in foreign currencies, and forward foreign exchange contracts are used for certain forecasted transactions denominated in foreign currencies. The Company executes and manages hedge transactions within the limits of established internal rules and regulations. The Company and its consolidated subsidiaries reduce credit risk by limiting counterparties to highly creditworthy financial institutions. (c) Supplemental explanation on estimated fair value of financial instruments The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available, the fair value is reasonably estimated. As the estimation of the fair value relies on various assumptions and factors, different assumptions and factors could result in different fair value. 31

32 Carrying value of financial instruments on the consolidated balance sheet as of March 31, 2016 and 2017 and estimated fair value were as follows: Carrying value March 31, 2016 Estimated fair value Difference Cash on hand and in banks 28,973 28,973 - Trade notes and accounts receivable (*1) 90,853 90,853 - Investment securities 15,726 15,726 - Total assets 135, ,553 - Trade notes and accounts payable 68,369 68,369 - Convertible bond-type bonds with share subscription rights 9,997 14,895 4,898 Long-term debt (*2) 18,775 18, Total liabilities 97, ,165 5,024 Derivatives (125) (125) Carrying value Estimated fair value March 31, 2017 Carrying Estimated Difference value fair value Difference (Thousands of Cash on hand and in banks 30,314 30,314 - $ 270,209 $ 270,209 $ - Trade notes and accounts receivable (*1) 106, , , ,592 - Investment securities 20,897 20, , ,266 - Total assets 157, ,410-1,403,068 1,403,068 - Trade notes and accounts payable 80,636 80, , ,745 - Convertible bond-type bonds with share subscription rights 1,860 2,978 1,118 16,579 26,551 9,972 Long-term debt (*2) 16,255 16, , , Total liabilities 98,752 99,906 1, , ,510 10,289 Derivatives (*3) (80) (80) $ (717) $ (717) $ (*1) The allowance for doubtful accounts was deducted from the trade notes and accounts receivable. (*2) The balances include the current portion of long-term debt. (*3) The value of assets and liabilities arising from derivatives is shown at net value, and with the amount in parentheses representing net liability position. Note 1: Short-term investments (current assets) and short-term borrowings, excluding the current portion of long-term debt (current liabilities), were not included in the above table because the amounts were immaterial. 32

33 Note 2: Valuation methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions are as follows: Assets Cash on hand and in banks Since all these items are settled in a short period of time, the carrying value approximates fair value. Trade notes and accounts receivable Since these items are settled in a short period of time, the carrying value approximates fair value. Investment securities The fair value of equity securities is based on quoted market prices. The fair value of debt securities is based on either quoted market prices or prices provided by the financial institutions making markets in these securities. The fair value of investment trusts is based on publicly available information. Liabilities Trade notes and accounts payable Since all these items are settled in a short period of time, the carrying value approximates fair value. Convertible bond-type bonds with share subscription rights The fair value of convertible bond-type bonds with share subscription rights is based on quoted market prices. Long-term debt The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new borrowings were entered into. Derivative transactions The fair value of derivative transactions is based on prices provided by the counterparty financial institutions. The fair value of the interest rate swaps and the interest rate and currency swaps was included in that of the hedged long-term debt as they are accounted for together with underlying hedged items under the short-cut method. Note 3: Unlisted equity securities of 16,177 million and 25,950 million ($231,310 thousand) as of March 31, 2016 and 2017, respectively, were not included in the above table because it was extremely difficult to determine the fair value. 33

34 (d) Redemption schedule for receivables and marketable securities with maturities at March 31, 2016 and March 31, 2017 were as follows: Due in one year or less March 31, 2016 Due after one year through five years Due after five years through ten years Due after ten years Cash in banks 28, Trade notes and accounts receivable 90, Short-term investments and investment securities Other securities with maturities (debt securities) 250 1,015 1, Other securities with maturities (Other) ,548 Total 120,035 1,076 1,101 6,940 Due in one year or less March 31, 2017 Due after one year through five years Due after five years through ten years Due after ten years Cash in banks 30, Trade notes and accounts receivable 106, Short-term investments and investment securities Other securities with maturities (debt securities) 3 1,000 1, Other securities with maturities (Other) ,490 Total 136,445 1,207 1,832 12,882 34

35 Due in one year or less March 31, 2017 Due after one year through five years Due after five years through ten years (Thousands of Due after ten years Cash in banks $ 269,522 $ - $ - $ - Trade notes and accounts receivable 946, Short-term investments and investment securities Other securities with maturities (debt securities) 33 8,913 16,334 3,494 Other securities with maturities (Other) - 1, ,329 Total $ 1,216,202 $ 10,765 $ 16,334 $ 114,823 (e) The redemption schedule for long-term debt is disclosed in Note Securities (a) Information regarding marketable securities classified as other securities as of March 31, 2016 and 2017 is as follows: Carrying value March 31, 2016 Acquisition cost Gross unrealized gain (loss) Securities whose carrying value exceeds their acquisition cost Equity securities 9,805 6,477 3,328 Debt securities Others Subtotal 10,468 7,031 3,436 Securities whose carrying value does not exceed their acquisition cost Equity securities 3,256 3,592 (335) Debt securities 2,180 2,242 (61) Others (31) Subtotal 5,554 5,983 (428) Total 16,022 13,014 3,007 35

36 Carrying value Acquisition cost Gross unrealized gain (loss) March 31, 2017 Carrying value Acquisition cost (Thousands of (b) Information regarding sales of securities classified as other securities for the years ended March 31, 2016 and 2017 is as follows: (Thousands of U.S. dollars) Proceeds from sales $ 4,499 Gains on sales Losses on sales (c) Impairment losses on securities classified as other securities of 84 million and 96 million ($856 thousand) were recognized for the years ended March 31, 2016 and 2017, respectively. 19. Supplemental Information on Consolidated Statement of Cash Flows Gross unrealized gain (loss) Securities whose carrying value exceeds their acquisition cost Equity securities 16,509 11,917 4,592 $ 147,161 $ 106,222 $ 40,938 Debt securities 1,121 1, ,999 9, Others ,908 1, Subtotal 17,845 13,128 4, , ,021 42,047 Securities whose carrying value does not exceed their acquisition cost Equity securities 863 1,152 (288) 7,695 10,271 (2,575) Debt securities 2,020 2,059 (38) 18,010 18,355 (344) Others (0) 1,507 1,507 (0) Subtotal 3,053 3,380 (327) 27,213 30,134 (2,921) Total 20,899 16,509 4,389 $ 186,282 $ 147,155 $ 39,126 (a) Cash and cash equivalents in the consolidated statement of cash flows for the years ended March 31, 2016 and 2017 are reconciled to cash on hand and in banks in the consolidated balance sheet as follows: (Thousands of Cash on hand and in banks 28,973 30,314 $ 270,209 Time deposits with maturities of more than three months (2,241) (287) (2,558) Cash and cash equivalents 26,732 30,027 $ 267,651 36

37 (b) Information regarding details of significant non-monetary transactions for the years ended March 31, 2016 and 2017 is as follows: Exercise of share subscription rights on convertible bond-type bonds with share subscription rights (Thousands of Gain on disposal of treasury stock due to exercise of share subscription rights 0 71 $ 641 Increase in common stock due to exercise of share subscription rights - 3,730 33,255 Increase in capital surplus due to exercise of share subscription rights - 3,726 33,212 Decrease in treasury stock due to exercise of share subscription rights ,419 Decrease in convertible bond-type bonds with share subscription rights 3 8,137 $ 72,528 Leased assets and lease obligations related to new finance lease transactions recorded for the years ended March 31, 2016 and 2017 amounted to 1,058 million and 1,162 million ($10,363 thousand), respectively. Asset retirement obligations recorded for the years ended March 31, 2016 and 2017 amounted to 74 million and 86 million ($769 thousand), respectively. 20. Derivative Transactions Summarized below are the notional amounts and the estimated fair value of the derivative instruments outstanding at March 31, 2016 and 2017, for which hedge accounting has been applied. a. Currency-related transactions March 31, 2016 Method of hedge accounting Hedging instruments Hedged items Notional amounts Due after one year Fair value Deferred hedge accounting Forward foreign exchange contracts Buy: USD Forecasted transactions denominated in foreign currencies 8,217 7,395 (125) 37

38 March 31, 2017 Method of hedge accounting Hedging instruments Hedged items Notional amounts Due after one year Fair value Deferred hedge accounting Forward foreign exchange contracts Buy: USD Forecasted transactions denominated in foreign currencies 6,984 6,573 (80) March 31, 2017 Method of hedge accounting Hedging instruments Hedged items Notional amounts Due after one year Fair value (Thousands of Deferred hedge accounting Forward foreign exchange contracts Buy: USD Forecasted transactions denominated in foreign currencies $ 62,255 $ 58,592 $ (717) The fair value was calculated based on prices provided by the counterparty financial institutions. 38

39 b. Interest-related transactions Method of hedge accounting Short-cut method Principle method Short-cut method Interest rate swap Interest rate swap Interest rate and currency swap Hedging instruments Receive: floating Pay: fixed Receive: floating Pay: fixed Receive: floating Pay: fixed Receive: USD Pay: JPY Hedged items Long-term debt Long-term debt Long-term debt Notional amounts March 31, 2016 Due after one year Fair value 5,000 5,000-2,911 2,759 (147) 2,008 1,757 - Method of hedge accounting Hedging instruments Hedged items Notional amounts March 31, 2017 Due after one year Fair value Short-cut method Principle method Short-cut method Interest rate swap Interest rate swap Interest rate and currency swap Receive: floating Pay: fixed Receive: floating Pay: fixed Receive: floating Pay: fixed Receive: USD Pay: JPY Long-term debt Long-term debt Long-term debt 5,000 5,000-2,759 2,593 (129) 1,757 1,506 - Method of hedge accounting Hedging instruments Hedged items March 31, 2017 Notional amounts Due after one year Fair value (Thousands of Short-cut method Principle method Short-cut method Interest rate swap Interest rate swap Interest rate and currency swap Receive: floating Pay: fixed Receive: floating Pay: fixed Receive: floating Pay: fixed Receive: USD Pay: JPY Long-term debt Long-term debt Long-term debt $ 44,567 $ 44,567 $ - 24,601 23,119 (1,155) 15,660 13,423 - The fair value of the interest swaps and the interest rate and currency swaps was included in that of the hedged long-term debt as they are accounted for together with underlying hedged items under the short-cut method. The principle method was applied to the interest rate swaps used to hedge long-term debt of affiliates accounted for by the equity method, and the notional amount and the fair value were based on the Company s proportionate share. The fair value was calculated based on prices provided by the counterparty financial institutions. 21. Segment Information (a) Outline of reportable segments The reportable segments of the Company and its consolidated subsidiaries (the Group ) 39

40 are components for which discrete financial information is available and whose operating results are regularly reviewed by the Board of Directors to make decisions on resource allocation and to assess performance. The Group is primarily engaged in the integrated utilities engineering service business, based on mid- to long-term business plans developed in the head office of the Company. The Company s regional offices mainly offer services in cooperation with each company of the Group. Also, some consolidated subsidiaries operate as independent management units and are involved in other industries such as the sales business of construction-related materials and equipment, the real-estate sales business and the renewable energy generation business. Thus, the Group consists of the segments based on business activities, with several businesses that have essentially identical financial characteristics and contents of services combined into Utilities engineering service as a reportable segment for the purpose of disclosing appropriate information. The Utilities engineering service segment primarily offers services for the design and construction of electrical works, such as power distribution line, indoor wiring, and communication, and of heating ventilation and air conditioning mechanical installation works, such as ventilation, heating and cooling, plumbing, water treatment and sanitation equipment installation. (b) Method used to calculate net sales, profit or loss, assets, liabilities and other items by reportable segment The accounting policies of the reportable segments are substantially the same as those described in 2. Summary of Significant Accounting Policies. Segment performance is evaluated based on operating profit or loss. Intersegment sales and transfers are recorded at the same prices used in transactions with third parties. As described in 3. Accounting Changes, as a result of revisions to the Corporate Tax Act of Japan, the Company and its domestic consolidated subsidiaries changed the depreciation method for both facilities attached to buildings and other non-building structures acquired on or after April 1, 2016 from the declining-balance method to the straight-line method. Accordingly, the depreciation method in the reportable segments was changed in the same manner. The effect of this change on segment profits of Utilities engineering service and Others was immaterial. (c) Net sales, profit or loss and other items by reportable segment for the years ended March 31, 2016 and 2017 are summarized as follows: Year ended March 31, 2016 Utilities engineering service Others Total Adjustments and eliminations Consolidated Net sales Sales to third parties 296,601 14, , ,346 Intersegment sales and transfers 3,823 19,164 22,987 (22,987) Total 300,425 33, ,334 (22,987) 311,346 Segment profit or loss 24,268 1,015 25,284 (86) 25,197 40

41 Other items Depreciation and amortization 3,005 2,629 5,635 (159) 5,475 Amortization of goodwill

42 Year ended March 31, 2017 Utilities engineering service Others Total Adjustments and eliminations Consolidated Net sales Sales to third parties 328,915 12, , ,771 Intersegment sales and transfers 3,582 20,103 23,686 (23,686) Total 332,498 32, ,458 (23,686) 341,771 Segment profit or loss 29,071 1,500 30, ,732 Other items Depreciation and amortization 3,043 2,563 5,607 (158) 5,449 Amortization of goodwill Year ended March 31, 2017 Utilities engineering service Others Total Adjustments and eliminations Consolidated (Thousands of Net sales Sales to third parties $ 2,931,773 $ 114,589 $3,046,363 $ $3,046,363 Intersegment sales and transfers 31, , ,129 (211,129) Total $ 2,963,710 $ 293,782 $ 3,257,493 $ (211,129) $3,046,363 Segment profit or loss $ 259,131 $ 13,373 $ 272,504 $ 1,427 $ 273,932 Other items Depreciation and amortization $ 27,131 $ 22,851 $ 49,983 $ (1,413) $ 48,569 Amortization of goodwill $ 2,806 $ 24 $ 2,830 $ - $ 2,830 The disclosure of geographical segment information has been omitted as net sales and total assets of the foreign operations constituted less than 10% of the consolidated totals for the years ended March 31, 2016 and There was no impairment loss on fixed assets recognized for the years ended March 31, 2016 and

43 The following table presents the amortization and balance of goodwill as of and for the years ended March 31, 2015 and 2016 by reportable segment: Utilities engineering service Year ended March 31, 2016 Adjustments and eliminations Consolidated Others Amortization Balance as of March 31 1, ,556 Utilities engineering service Year ended March 31, 2017 Adjustments and eliminations Consolidated Others Amortization Balance as of March 31 1, ,175 Utilities engineering service Year ended March 31, 2017 Adjustments and eliminations Consolidated Others (Thousands of Amortization $ 2,806 $ 24 $ - $ 2,830 Balance as of March 31 $ 10,478 $ - $ - $ 10,478 The following table presents major customer information for the years ended March 31, 2016 and 2017: (Thousands of Name of customers: Kyushu Electric Power Co., Inc. Reportable segment: Utilities engineering service and Others Net sales 50,900 52,505 $ 468,004 43

44 22. Related Party Transactions Consolidated net sales from construction contracts included those involving Kyushu Electric Power Co., Inc., which has an approximately 25% ownership interest in the Company, in the amounts of 47,625 million and 48,652 million ($433,659 thousand) for the years ended March 31, 2016 and 2017, respectively. The related receivables at March 31, 2016 and 2017 amounted to 7,728 million and 9,317 million ($83,051 thousand), respectively. The related advances received at March 31, 2016 and 2017 amounted to 132 million and 62 million ($557 thousand), respectively. The terms of the transactions referred to above were negotiated and determined on an arm s-length basis similar to third party transactions. 44

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